Regulation Fuels 21% Surge in Checking Fees

By Elizabeth Ody -
Feb 29, 2012

Consumers pay about 21 percent more
in fees for basic checking accounts than they did six years ago,
according to a study released today.

An average consumer may pay about $7.72 a month in a
combination of monthly and automated teller machine fees this
year compared with about $6.36 in 2006, according to the study
by Pleasanton, California-based Javelin Strategy & Research,
which looked at fees on basic checking accounts offered by 30
financial institutions.

Fees have increased as regulations have curtailed some of
banks’ related revenue sources, Javelin said. Rules requiring
banks to get consumers’ consent for overdraft protection, and
limiting what banks may charge merchants on debit transactions,
have cost the industry about $12.2 billion annually, according
to the study.

“There are essentially more restrictions on the way banks
can do business, so they really need to search for ways to
address that revenue shortfall,” said Beth Robertson, director
of payments research for Javelin.

Managing security and fraud risks also has increased the
expense of offering checking accounts, she said. The annual cost
to banks for checking accounts averages $192 to $359 per
account. Costs vary by customer and how they use their accounts,
the report said.

The increase in the fees compares with an average annual
inflation rate of about 2.4 percent over the same period,
according to data compiled by Bloomberg.

Large banks generally charge higher monthly fees compared
with mid-size and smaller institutions, with an average fee of
$5.88. Pittsburgh-based PNC Financial Services Group Inc. (PNC) and
Detroit-based Ally Financial Inc. (ALLY) were the only two large
institutions included in the study that don’t charge a monthly
fee for basic checking, Javelin found. Out of the 10 community
banks considered, seven charge no monthly fee and the average
charge was about $2, the study found.

Comparing Fees ‘Impossible’

Fees for stop payments were among the largest of those
Javelin examined, at $30.76 on average. The average insufficient
funds fee has risen to $29 from about $25 in 2006, Javelin
found.

Comparison shopping for the best account may be difficult
as disclosures for checking account fees and key policies were
often more than 100 pages long, according to a report released
in April 2011 by the Pew Charitable Trusts that analyzed more
than 250 accounts offered by the 10 largest U.S. banks.

“It’s very hard for a consumer to know the fees on their
checking accounts by reading the disclosure documents,” said
Susan Weinstock, director of the Safe Checking in the Electronic
Age Project for the Pew Health Group. “It’s basically
impossible for a consumer to comparison shop for a checking
account.”

CFPB Inquiry

The Consumer Financial Protection Bureau last week started
an inquiry into the impact on consumers of checking-account
overdraft programs. The agency will examine whether banks order
transactions from a customer’s account in a way to produce a
greater number of overdraft charges, as well as the clarity of
overdraft disclosures, the bureau said in a statement.

The average overdraft penalty charge is about $30, the
Javelin study found. About 3 percent of consumers make 30 or
more overdrafts a year, according to the report.

All of the banks examined in the Pew study said they
reserve the right to reorder withdrawals from largest to
smallest, which may increase overdraft charges.

Transaction reordering “makes it really impossible for
even the most responsible person to know how much money is in
their checking account,” Weinstock said.

Regulation that seeks to target specific fees, such as for
overdrafts, may not be successful in lowering total bank-account
costs to consumers, Javelin’s Robertson said.

Shifting Fees

“What’s going to happen is the revenue that’s needed to
cover that expense for the bank is just going to shift” to
another type of fee or charge, she said.

Some banks may look to increase income by charging
additional fees for optional services that consumers value, such
as for expedited processing on transfers, which customers may
use to pay credit-card, utility or other bills that have due
dates, Robertson said.

“Things like that are valuable to a consumer, because you
avoid the late-payment fee and avoid the credit-reporting
ding,” she said.

Banks may also try to steer customers to lower-cost
services as they seek to balance fees and the cost of
maintaining accounts. One Bank of America checking account
waives an $8.95 monthly fee provided customers receive their
statements online and don’t use live tellers for transactions.

About 86 percent of accounts examined by Pew would waive a
monthly fee with a minimum account balance, and did so at a
median of $2,500.